Chuka Umunna MP

Ministers have cast doubt on when a new EU directive on late payments will be implemented into UK law in a letter to Shadow Business Minister Chuka Umunna MP.

During a House of Commons debate on late payments earlier this month, BIS Minister Ed Davey MP announced that the government would transpose the EU directive on late payments into UK law in the “first half of 2012, which is earlier than we are required to do. I hope that addresses some of the concerns that colleagues have expressed during the debate”.

However, Mr Umunna, who earlier this year called on the government to implement the directive early to help small businesses, has now received a letter from Mr Davey going back on the promise he made in Parliament.

Seeking to “clarify” the statement made during the debate, his letter says: “the deadline for transposition is 16 March 2013 and the outcome of the consultation will determine the final timetable for the transposition process”.

Statistics released in July by the Federation of Small Businesses show that 73% have been paid late in the past year and for a large majority (77%) this was by other businesses. According to payment industry body Bacs £24 billion is now owed to SMEs across Britain in late payments, with each business being owed on average £27,000 and waiting 39 days longer than stipulated by payment terms.

Increasingly, large businesses are extending payment terms beyond what could be reasonably expected by small and medium sized businesses which often rely on steady cash flow for survival.

The EU directive on late payments will introduce new curbs on commercial contracts setting payment terms longer than 60 days. Under its terms, payment terms beyond 60 days will only be valid if expressly agreed beforehand and in most cases, payment terms beyond 60 days will be deemed ‘grossly unfair’ and hence unlawful. The directive also establishes minimum levels of compensation for late payment.

Commenting, Shadow Minister for Small Business and Enterprise Chuka Umunna MP said:

“We have been calling for the government to bring forward implementation of the EU directive on late payment into UK law, which would help small businesses by clamping down on unfair payment terms.

“Ministers must act to end the chaos and confusion surrounding the late payment directive and give small businesses the certainty they need on this issue.”

Speech at Rochman Landau LLP by Chuka Umunna MP, Shadow Minister for Small Business & Enterprise, Tuesday 20th September 2011

Let me start by saying how great it is to be speaking here at my old firm. As many of you know, this is where I practiced for a number of years and it is a real pleasure to be back again.

Above all, it is good to be here talking to you all today for another more profound reason.

We face an extremely uncertain and volatile economic climate:

• there is the ongoing crisis in the Eurozone which inevitably will have a major impact on our economy: half of our trade is with other countries in the European Union; our banks have lent billions of pounds to Eurozone countries facing big problems;
• our economy has flatlined with 0.2% GDP growth over the last 3 quarters to June 2011;
• confidence has nose dived following the Chancellor’s comprehensive spending review which has, in turn, hit domestic demand hard;
• last week we learnt that unemployment has surged above 2.5 million.

So it is a difficult economic environment for you to operate your businesses.

We disagree with the government’s economic strategy. It is implementing one of the biggest fiscal consolidations embarked upon by any government in the Western world at this stage in a country’s recovery in the name of deficit reduction. It is a very big gamble.

Reducing the deficit is essential but the Opposition’s view is that you have got to allow the recovery to settle in, otherwise you risk choking recovery off with the result that more people are claiming benefit, fewer people are paying income tax and fewer people are buying your goods.

However, where we do agree is in a belief that growth, which we hope will return, should be private sector driven. And here, you are obviously crucial – if you as businesses do not flourish and thrive, we as a country will not do so and growth is unlikely to return.

For this more profound reason, I very much welcome the opportunity to exchange views with you this evening because we must do all we can to help foster a sound business environment in which you can trade and do business. Regulation is of course part of the package.

I am going to talk about:

• the function of regulation;
• the principles underpinning our approach to regulation;
• what we did in government;
• what the Conservative led Coalition is doing and our response.

The function of regulation

I know the challenge regulation presents because, as an employment lawyer, providing advice to clients on how to deal with it was my bread and butter when I was here. Day in, day out, I received calls from businesses who wanted to do the right thing but didn’t know how – every fee earner in this firm still receives those calls every single working day.

Before I continue, let me be clear what I’m mean when I say “regulation”. I’m talking about the plethora of laws, rules and procedures you are required to follow when you go about doing your business activities, be they relating to health and safety, licensing or employment. It is a long list collectively referred to as “Red Tape”.

In every major election you will hear politicians of different parties promising to cut Red Tape. But I think business people are fed up of politicians whispering sweet nothings in their ears about their determination to cut Red Tape, when your practical experience often suggests otherwise. The debate over regulation is, in any event, far too crude in my view – it is more complicated than that and we should be honest, up front and say so.

Whilst some regulations may be viewed as obstructive, many are welcomed by business because good regulation underpins fair markets. For example, here at Rochman Landau many clients are small and medium sized enterprises with up to 250 employees or have a turnover of up to £25m – those clients will appreciate the benefits of a competition regime which, in part, exists to ensure that larger businesses cannot squeeze them out as a new entrant to whichever market they are seeking to break into.

People appreciate that regulation can actually create markets too, spurring economic growth and innovation. In government Labour decided that from 2016 new homes would have to be carbon-neutral. This simple measure created entire new markets in architecture, building technology, skills training, renewable energy generation, and building management. The innovation it stimulated has made UK firms in these areas world leaders.

And though regulations to safeguard workers’ rights can often be difficult to circumnavigate, doing away with them is no substitute for a properly thought out growth strategy. The Prime Minister’s director of strategy, Steve Hilton, has reportedly been floating ideas that include abolishing maternity leave – I don’t believe this is something anyone in this room would want for women in their families nor am I convinced that it will promote growth.

Despite all this I do know – after more than half a decade spent dealing with the country’s Employment Tribunals – that regulation does not always meet its purpose. Employment Tribunals were supposed to be more informal than the rest of the Civil Court system and to encourage parties to settle but my experience in practice was that this was not always the case – the way they operate seemed to lead to an inordinate amount of time spent obsessing with procedure as opposed to addressing the substantial issues of a case.

I also know that:
• government can rush to regulate without considering other ways of achieving behavourial change;
• consideration of enforcement after implantation is frequently just an afterthought; and,
• regulation often overlaps creating further complexity.

So of course we should look to reduce the regulatory burden where we can, but our priority should be to move towards smarter regulation – this goes further than simply looking at the quantity of regulation – it looks at its quality too and how it might be used more intelligently to shape markets.

Approach to smart regulation

So what underpins our approach to smart regulation?

First, we should view regulation as a last resort which we seek to implement to correct market failure, address a social inequality or safeguard people’s personal safety and security.

To illustrate this point, consider mobile telephone roaming charges whilst travelling abroad. According to some reports, mobile network operators are making profits of 200% on calls made in Europe and a staggering 400% on calls received whilst roaming.

Consequently from July this year the EU introduced regulations setting the maximum permitted charge at 32p per minute, excluding VAT, for calls made while abroad and no more than 10p per minute for calls received while roaming in EU countries. Clearly the market was not functioning correctly and we, the consumers, were being ripped off – everyone will have welcomed the EU’s intervention in this instance.

Secondly, regulation should be outcome focused and guard against unintended consequences.

In October 2004 we, in government, introduced the work place statutory dispute resolution procedures. We introduced them with the intention of reducing the number of disputes that ended up in the Employment Tribunals. The opposite in fact turned out to be the affect – both parties, the employer and employee, found themselves confronted with a very prescriptive procedure for resolving workplace disputes with heavy sanctions for failure to comply. The procedures of course evolved through case law as they were subject to interpretation, which created more uncertainty and complexity for all involved. They did not achieve what we wanted them to which was why they were repealed and replaced with a more flexible regime in April 2009.

Thirdly, regulation should be as easy to understand as possible and should do what it says on the tin. This will add to business certainty and improve perceptions of regulation which sometimes do not marry with the reality of the affect of a rule.

Part of the solution lies in drawing regulation up with the small guy in mind – the small business owner or firm that does not have the resource to employ an army of compliance and risk consultants to work out how to comply and do the right thing.

Finally, we must always ask whether the regulation is proportionate, consistent, transparent and targeted.

There is a feeling out in the country that those who want to do the right thing and ensure they comply are burdened more heavily than those who don’t care and are determined not to.

This is why it is crucial policy makers like me talk to you as we develop and scrutinise regulation, to ensure we get it right.

Labour in Government

What did we do in government? I don’t pretend we got everything right when we were in power. However, according to the World Bank, when we were gently eased out of office by the British people our economy topped Europe for ‘ease of doing business’ and the OECD found that barriers to entrepreneurship were lower here than in any other member country. This helped foster an environment from 1997 to 2010 in which 1.1 million new enterprises were created and the turnover of small and medium enterprises grew by over a third.

In our quest to put in place a better regulatory regime, in 2005 we set up the Better Regulation Executive. This was set up primarily to implement the recommendations of the Hampton Review into regulation. The BRE’s remit was to work with departments and regulators to:

• improve the design of new regulations and how they are communicated;
• simplify and modernise existing regulations; and,
• change attitudes and approaches to regulation to become more risk-based.

It had some considerable success, helping to deliver well over £3 billion a year of savings for business due to the simplifications made to regulations which followed. The Coalition has retained the BRE and now describes it as being instrumental in putting their strategy in place on reducing regulation.

We set up the Regulatory Policy Committee. We tasked the RPC with providing, for the first time in the UK, independent scrutiny of proposed regulatory measures put forward by Government. Its purpose is to challenge where proposals are not supported by robust evidence and analysis. Put simply, it produces opinions on the quality of the impact assessments produced to support regulatory proposals, covering issues from nuclear energy, equality legislation and migration limits, to the 2012 Olympic Games.

The RPC too has been continued by the Coalition and put at the centre of the new regulatory regime they are seeking to put in place.

In addition to this we introduced the Primary Authority Scheme to simplify the rules faced by businesses acting across a number of local authority areas. The scheme allows a business to agree its approach to compliance with one local authority and be assured that the advice they receive will be respected by the other local authority areas they operate in. There has been significant take up of this scheme and the government is now looking to expand it.

Finally, we set up a Cabinet sub-committee on Better Regulation which brought together ministers to scrutinise the impact on business of planned and proposed regulations. This focused the attention of government ministers on the issue. Again, the Coalition has taken this forward through the establishment of their Reducing Regulation Committee of Cabinet.

So we laid good, solid foundations upon which the new government has sought to build. Rest assured: getting regulation right was a serious concern of ours in power – that has not changed. We may not be in government but we have an important function as Her Majesty’s Official Opposition in holding the government to account and ensuring they get it right whilst their hands are on the levers.

The Conservative-led Government

I have already mentioned some of the things they are doing but what’s new? There are two flagship policies that have been introduced to great fanfare.

One In One Out
One is the introduction of the One-in, One-out rule. This means that no new primary or secondary legislation that imposes a cost on business or civil society organisations, can be brought in without the identification of existing regulations with an equivalent value that can be removed. It is part of the government’s Red Tape Challenge.

The motivation behind the policy is understandable but I fear the government risks overpromising and under delivering for a number of reasons.

First, the Government estimates that around 50% of UK legislation with a significant economic impact originates from EU legislation. Yet, regulation that is required to implement EU obligations does not fall within the scope of the One-in, One-out framework.

Second, it is quite easy for Government departments to get around the framework by massaging the figures – attributing a higher cost, say, to regulation disposed of, and a lower cost to new ones introduced. Presumably any judgement they make in assessing cost and benefit will be based on departmental impact assessments – the RPC currently tells us that 31% of central government impact assessments are not fit for purpose.

And third, the framework fails to take account of the particular circumstances of individual departments – it is applied to every department and applies over the course on a year. But take the Department for Energy & Climate Change – much of its work will surely involve a cost to business, certainly in the short term. How is a department like DeCC going to be able to operate within this framework?

We support the intention which lies behind the One In One Out framework but the government should not make promises it cannot deliver – as it is currently configured, there is a real risk that is what they are doing here.

Moratorium for micro firms
The other flagship policy, announced in the long delayed Plan for Growth published in March, was the commitment to introduce a moratorium on all new regulation of domestic origin for firms with fewer than 10 employees from 1 April 2011.

I have already mentioned just how much legislation the government estimates finds its origins in Europe – this moratorium, like the One In One Out framework, only applies to domestic law.

Business lobby groups have expressed dismay that none of the regulations that came into force last April were subject to the moratorium. In particular they have said to me that they take exception to the fact that some significant regulations for business were implemented after 1 April 2011 – additional paternity leave and pay and the abolition of the default retirement age for exmple. It is right to say that we support the these measures but, then again, we have not committed to put in place this moratorium; the government has.

There is of course the risk too that this moratorium will disincentivise businesses to grow at a time when we need businesses to expand and create jobs.

Again, over promising and under delivering calls into question your credibility. That is why I will not do it as the Shadow Business Minister with responsibility for regulation on the Opposition front bench.

Next steps
There are a number of policy developments likely this autumn.

The government has just finished consulting on reforming the way regulation is enforced. They have set out some principles but we await the detail. The consultation closed last Friday and a White Paper is due. Likewise, in tandem with this the government has been consulting on extending the benefits of the primary authority scheme I mentioned and on the future of the local better regulation office, the delivery vehicle for that scheme. The consultation on this closed last Friday too and I would expect any proposals to feature in the same White Paper.

It may be that the Government is planning to incorporate the proposals that flow from these consultations in the second instalment of their Plan for Growth expected this November.

Meanwhile, we in the Labour Party are in the process of carrying out the biggest overhaul of our policies since Tony Blair became leader in 1994 and we would welcome your input. As part of this, we are undertaking a fundamental fresh look at the role and purpose of regulation.

We must think creatively in doing so and be open minded. I think we should give serious consideration to exploring whether it would be possible to, as far as we can, put in place one Common Commencement Date for new regulation in either April or October instead of the two dates we currently have in April and October. This would potentially create more certainty and less disruption for business.

Conclusion

Let me finish by referring to what the Leader of the Labour Party Ed Miliband has described as the 3 principal challenges facing our country and the role you have to play.

We face a cost of living crisis. Since 2003 middle and lower income earners in this country have faced a squeeze in their living standards as their wages have stagnated and costs have risen. The causes of this are complex and are, in part, attributable to an economy that produces high-skill, high productivity sectors at one end and low-skill and low paid jobs at the other. Simultaneously, economic migration and greater labour market flexibility have increased the pressure faced by them.

At the same time we have seen the erosion of what we call the “British Promise” – the hope and belief people have that the next generation will do better than the last. Less than one in ten people now think life will be easier for their children than it was for them, and seven out of ten think it will be harder.

Moreover, there is this sense too that in different ways, including changing workplaces and working lives, our communities and the strong social institutions and common bonds that hold us together are being eroded.

To meet these challenges our economy and the way it is structured will need to change. We cannot hope to achieve this without you. You have a massive role to play:

• in helping us rebalance our economy;
• in transforming it so it creates the better quality and better paid jobs we need; and,
• above all, in ensuring we pay our way in the world and compete internationally.

You are key pillars of our communities too.

Working with you I know we can meet this challenge. Thank you for all that you do and for listening. Now I am very keen to hear what you have to say.

A Bank of England survey report published today spells out the ongoing difficulties which small and medium sized businesses (SMEs) face in accessing finance, while separate figures from the Bank show that business lending has contracted in ten of the last twelve months.

The Bank of England’s monthly Agents’ Summary of Business Conditions report for September, released today, notes that “small businesses and start-ups still found it difficult to gain access to credit, and where loans were available, fees remained elevated and the applications process was often drawn out.”

According to the Bank of England’s August statistics on lending to UK businesses, the net monthly flow of lending was negative in ten months of the past year – including each of the last three months.

The government’s Project Merlin agreement with the banks to boost lending to businesses has been criticised for setting up gross rather than net targets, which cover facilities made available to businesses rather than actual lending.

Additionally, Merlin does not address the cost of credit and its affordability to businesses. According to a survey of more than 150 SMEs across the country carried out by Labour this summer, almost a third of businesses had experienced an increase in the cost of borrowing, and of these businesses 45% had seen a rise of 3%.

Shadow Minister for Small Business & Enterprise Chuka Umunna MP is writing to Business Minister Mark Prisk to ask whether the government has begun negotiating a new deal with banks for lending in 2012 to replace Project Merlin, and if so, whether it will address the widely-publicised shortcomings of the Merlin deal.

Chancellor George Osborne praised the Project Merlin agreement in answer to a question by My Umunna last week in the House of Commons, saying: “I talk to UKFI all the time, and one of the things I talk about is ensuring that the banks in which we have a public ownership of shares are meeting their Merlin lending targets. I congratulate Lloyds, which has changed its operations and advertising campaigns and has tried to encourage small business lending.

Today’s Agents’ Summary also highlights the lack of confidence in the economy as a factor holding back growth, with “increased nervousness” leading “some firms to scale back investment plans”.

Commenting, Shadow Minister for Small Business & Enterprise Chuka Umunna MP said:

“The statistics today show that on the ground, small and medium sized enterprises are still struggling to access finance to grow their businesses. With the economy flatlining and unemployment high, businesses who are trying to grow are hindered at every turn.

“If the government seeks to replace Project Merlin, the Tory-led Government need to get tough – it is crucial they and the banks learn from the shortcomings of Merlin and provide real support for our SMEs.”

Shadow Minister for Small Business and Enterprise Chuka Umunna MP is demanding that the government helps small and medium sized businesses up and down the county by taking firm action on late payments, speaking in a Parliamentary debate on the issue today.

Late payment is causing significant cash flow problems for many businesses, in particular small and medium sized enterprises (SMEs). Statistics released in July by the Federation of Small Businesses show that 73% have been paid late in the past year and for a large majority (77%) this was by other businesses.

According to payment industry body Bacs £24 billion is now owed to SMEs across Britain in late payments, with each business being owed on average £27,000 and waiting 39 days longer than stipulated by payment terms.

As well as large firms, government departments are also guilty of paying suppliers late which can have a knock-on effect down the supply chain. Seven key government departments left £3.7bn worth of invoices unpaid within the five-day target between May 2010 and May 2011, while £370m was not paid within 30 days.

Labour is urging the government to improve its performance by paying invoices quicker and to take action to ensure its corporate contractors pay firms further down the supply chain on time.

In government, Labour introduced legislation allowing firms to charge interest and obtain compensation on overdue payments and launched the Prompt Payment Code in conjunction with business organisations and the Institute of Credit Management, stipulating that suppliers should be paid on time with many FTSE 100 firms signing up.

In the March 2010 Budget, Labour set government departments the target of paying 80% of undisputed invoices within five days with a requirement that invoices should be paid within 10 days.

The adjournment debate on late payments was secured by Oldham East and Saddleworth MP Debbie Abrahams to highlight how the issue is crippling local businesses in her constituency. Among those watching the debate in Westminster will be her constituent Ann Long whose small family business, which she and husband Harry had set up from scratch 35 years ago, went under due to the effect of late payment by larger contractors.

Commenting, Labour’s Shadow Minister for Small Business & Enterprise Chuka Umunna MP, said:

“Too many firms have gone under due to late payment and this is a growing concern for small businesses up and down the country.

“It is welcome that the government has continued measures initiated under Labour such as the Prompt Payment Code, however ministers need to ensure Whitehall departments pay on time and that all companies which supply the public sector sign up to the Code, enforcing it at all levels of the supply chain.”

Commenting, former small business owner Ann Long said:

“When the recession hit, our regular clients’ work began to dry up and the only companies who seemed to have work were the larger companies, so we had to try and win work with them.

“The government should be doing more to ensure that these large companies pay on time. Sub-contractors are being crippled by this and we hear nearly every week of another SME we know that has gone under. We don’t have legal departments and in most cases can’t even put up a fight.”

Shadow Minister for Small Business & Enterprise Chuka Umunna MP and Shadow Regional Economies Minister
Gordon Marsden MP are calling on the government to take urgent action to help retailers in seaside towns.

Coastal towns have some of the UK’s highest rates of business failure, according to research undertaken earlier this year by accountancy firm UHY Hacker Young. Seaside towns and cities including Poole, Blackpool, Southend on Sea and Bournemouth were among the lowest-ranked across the country for business creation, the research found.

Labour has recently launched the Save Our High Streets Campaign, unveiling a four-point plan to help struggling retailers, protect jobs and give people a real say over their local high street:

• Enact a temporary cut in VAT from 20% to 17.5%, giving struggling retailers a boost and putting £450 back into each family’s pocket.

• Introduce a retail diversity planning clause, putting communities in charge of the future of their local high streets. Local people and local retailers would have a say on any retail plans for their area, giving them the power to put the heart back into the high street.

• Create a ‘competition test’ in the planning system, leading to greater choice and lower prices for shoppers. The test would ensure a level playing field between small and large shops.

• Repeat Labour’s empty shops initiative, enabling councils to pursue innovative uses for empty shops and reinvigorate high-streets, such as using vacant units for cultural, community or learning services, rather than leaving them empty.

This follows a spate of household-name high street retailers going under or having to close premises. Jane Norman, Focus DIY, TJ Hughes and Ethel Austin have gone into administration; Carpetright has closed 75 stores, while Habitat has put 30 premises outside London into administration. Retailers HomeForm, All Saints, HMV, Comet, Mothercare, JJB Sports and Thorntons have also been hit.

According to the Local Data Company, 14.6% of retail premises in the UK are now vacant, indicating that approximately 50,000 high street units are empty, with vacancy rates rising. The Javelin Group has predicted that if current trends continue, a quarter of all non-food retail outlets in the UK could be vacant by 2020.

The Bank of England’s Agents’ Summary of Business Conditions for August highlighted the difficulties currently facing high street retailers, with many stores having to rely on discounting to drive sales and “reporting that promotions were now used almost all year round”.

The report noted that most shops began summer sales early, with “discounts deeper and across a wider range of goods than usual” and that High Streets are “losing ground to destination shopping centres, discount stores and the internet”.

Statistics released recently by the British Retail Consortium (BRC) show that in the second quarter of 2011 retail employment was down 0.4% on the same quarter last year – the equivalent of 3,100 fewer full time jobs in the retail sector.

In government, Labour launched a £5 million Seaside Towns Grant to tackle deprivation and help boost local economies hit by the downturn.

Commenting, Shadow Minister for Small Business and Enterprise Chuka Umunna MP said:

“This weekend many people will be enjoying a trip to the seaside, but many of our coastal towns’ High Streets are suffering badly from the government’s VAT hike and the squeeze on family incomes which have hit retailers. Last week, the Bank of England confirmed that many shops are having to run sales all year round to survive.

“The Tory-led government is bystanding while businesses suffer and our high streets stagnate. We are calling for a temporary cut in VAT, which would give struggling retailers a boost and put money back in families’ pockets.”

Commenting, Shadow Skills Minister and Blackpool South MP Gordon Marsden said:

“Local businesses and enterprises in Seaside and Coastal Towns, a high proportion of them small businesses, benefitted greatly from the money the Labour Government put in to boost their local economies in the downturn.

“In particular, the Seaside Towns Grant together with money for Empty Shops Initiative and Future Jobs Fund enabled both residents and visitors to support Seaside Economies as did Labour’s SeaChange initiative. All of these were scrapped by the Tory-led Government who have shown little understanding of either the specific needs of seaside towns or small businesses in them.”

Shadow Business Minister and Member of Parliament for Streatham Chuka Umunna is urging businesses affected by the recent unrest but without insurance cover to make claims before the deadline passes next month.

Under the Riot (Damages) Act 1886 affected businesses which are uninsured, or whose insurance does not cover riot damage, can claim compensation from Police Authorities. Normally, claims must be received within 14 days but to give people more time to submit these claims the government has extended the period to 42 days. These 42 days are counted from the first day after the damage occurred.

Businesses which have suffered as a result of the civil disturbances are being advised to obtain a crime number from the police. Businesses which have insurance covering riot damage should contact their insurers immediately if they have not already done so.

Following calls by Labour, the government set up a £20m support package for affected High Streets and commercial districts, to be distributed by local councils.

Commenting, Chuka Umunna MP said:

“Small and medium sized businesses are the lifeblood of local economies and community hubs – we are looking to them to provide the jobs and growth we need. They were also among the worst sufferers from the recent unrest, so it is crucial that those affected are able to get back on their feet as soon as possible.

“It is important that we send out a message to all affected local businesses that do not have insurance cover and have yet to seek compensation, to put in their claims before the deadline passes next month.”

The Bank of England’s monthly Agents’ Summary of Business Conditions for August, released today, stresses the difficulties facing high street retailers and banks’ failure to lend to small businesses on reasonable terms.

According to the report, for many stores discounting is required to drive sales with many retailers “reporting that promotions were now used almost all year round”, and that high streets are “losing ground to destination shopping centres, discount stores and the internet”.

Most stores began summer sales early “with discounts deeper and across a wider range of goods than usual”, the report said.

Last month, Labour launched a campaign to save Britain’s high streets, demanding urgent action to help retailers, protect jobs and give people a real say over their local high street including a temporary VAT cut from 20% to 17.5% to give struggling retailers a boost.

In government, Labour enacted a temporary cut in VAT from 17.5% to 15% in November 2008 – this reduced the tax liability for both businesses and households by around £11bn and increased GDP by 0.5 per cent. According to the Centre for Economics and Business Research, the temporary VAT cut boosted sales by between £8 and £9 billion.

The Summary of Business conditions also highlights the continuing difficulties which small businesses face in accessing finance: “small companies, with weak cash flow or relatively little collateral, still found borrowing terms prohibitive”. This follows the most recent statistics on the government’s Project Merlin agreement, with the five banks covered by the deal missing their target for lending to SMEs by £600m in the second quarter of 2011.

Minutes of the Bank of England’s August Monetary Policy Committee August meeting, also published today, confirm that “indicators of the cost of bank credit to smaller businesses remained elevated and the supply of credit to them was still restricted”.

Commenting, Shadow Minister for Small Business and Enterprise Chuka Umunna MP said:

“The Bank of England’s latest Agents’ Summary of Business Conditions highlights the need for urgent action to help High Street retailers, who have been hit by the government’s VAT hike, falling consumer confidence and the squeeze on family incomes. A temporary cut in VAT would help consumers and businesses now and would help us get the deficit down.

“The Managing Director of the IMF, Christine Lagarde, is right to say that ‘slamming on the brakes too quickly will hurt the recovery and worsen job prospects’. The evidence for George Osborne’s claim that Britain is a safe haven has collapsed – that is why the Chancellor should take heed of the IMF’s latest advice.”

Labour today urged business as usual in Britain’s High Streets, already suffering from falling retails sales and now hard hit by the riots in London, Birmingham, Manchester and Liverpool. With decisive action having been taken by the Police to restore order, shops, pubs, bars and restaurants should remain open and shoppers should once again go back into the High Street, Labour said.

Shadow Local Government Minister and MP for Birmingham Erdington, Jack Dromey said:

“Birmingham lost £5 million a day in sales and some shops in Erdington High Street in my constituency saw their sales halved. Indeed, on Tuesday, riot rumours swept the High Street and all shops shut up shutters. Britain’s High Streets are already struggling as sales fall because of collapsing consumer confidence. We cannot allow fear to grip the High Streets because some small retailers will simply go out of business.”

“The Police have acted decisively to restore order. Now we need normality on the High Street. Our message to shoppers this weekend is you can shop in safety and, to shop keepers, it should be business as usual.”

Chuka Umunna, Shadow Minister for Small Business & Enterprise and MP for Streatham said:

“Small and medium sized businesses are the lifeblood of our local economies and lynchpins of our local communities, providing most private sector jobs and almost half of private sector turnover in this country – they were amongst the biggest victims of the unrest.

“All of us can help stop the actions of a few from dragging our economy down as a whole by getting out on to the high street, supporting our local shops and, in affected areas, helping them get back on their feet again.”

Chris Leslie MP, Labour’s Shadow Treasury Minister, commenting on today’s Project Merlin figures from the Bank of England, said:

“Securing lending to small businesses is vital to our economic recovery and getting the deficit down. But even on the Tory-led Government’s own unconvincing Project Merlin measures it’s disappointing that the banks have missed their 6 month target for lending to small businesses.

“It is becoming clear that Project Merlin simply won’t deliver for small businesses. As we highlighted earlier this week there are five significant flaws in the deal which render it almost meaningless.

“And last week’s statement by the banks themselves raised significant questions about how the data is collated and reported, which is why we have written to the Governor of the Bank of England to clarify the process.

“We need tough action from the Tory-led Government to help our small businesses but George Osborne continues to let the banks off the hook.

“Instead of giving the banks a tax cut this year the Government needs to repeat the bank bonus tax this year on top of the bank levy and use the money to build more affordable homes, support small businesses and create over 100,000 jobs.  And it should immediately introduce a temporary VAT cut to help kick start the recovery.”

Chuka Umunna MP, Labour’s Shadow Business Minister said:

“The Tory-led Government is letting small business down. We learned this week that the Government has missed its own deadline for the Business Growth Fund to begin investing in SMEs, just when the economy is flatlining and businesses are crying out for access to finance.

“And the bid threshold of the oversubscribed Regional Growth Fund remains so high that many small and medium sized businesses miss out on this potential investment.”

Dear Sir Mervyn,

Project Merlin lending targets – reporting mechanisms  

To the Treasury Select Committee on 1st March, you stated that the Bank of England would not be monitoring the level of bank lending to businesses, but publishing bank-provided data after a ‘fairly cursory plausibility check’. It was noted at the time that this differed from the Chancellor’s statement that in order to ‘ensure progress against lending targets can be monitored, the Bank of England has agreed to collect the relevant data.’

On Friday 5th August, the five Merlin banks released a statement detailing their collective business lending amounts for the first half of 2011, stating that they had lent £100.4bn to UK businesses and £37.4bn to small and medium sizes enterprises.

It is our understanding that the Bank of England is the publisher of Project Merlin lending data on a quarterly basis, with the next quarterly data due on 12th August. The statement by the banks last week throws this into doubt, and raises significant questions about the data collation and reporting process, in which there must be the utmost transparency and integrity to ensure the figures presented to the public and business are correct. We would ask you to advise us of the following:

• If the banks are able to put out their own data ahead of the Bank of England’s verified data, which data set do you believe should be considered as the actual picture of lending to UK businesses and SMEs?

• Do you believe the advance publication of data by the banks is useful for the reporting of lending commitments to businesses?

• Do you believe the banks should be going against the Merlin agreement and publishing their own figures, when it was explicit in the agreement that the Bank of England had this role?

• Has the Bank raised concerns with the Merlin banks about the publication of their own data and the confused picture this provides to markets and businesses?

• Has the data that has been released by the banks been collated and audited by PricewaterhouseCoopers?

In addition to the quarterly Merlin reports, the Bank of England also publishes its monthly Trends in Lending report, giving three month trends covering lending to UK businesses and SMEs. With now three separate sources for the true picture of bank lending to UK businesses and SMEs, it has become difficult to know which one to believe. Why does the Bank of England not use the same figures as the lending targets in the Merlin agreement?

We know your own personal commitment to ensuring small businesses have access to reliable funding from the banks, and agree that the treatment they have received in the last few years has indeed been heartbreaking. We would welcome the opportunity to discuss any further ideas you may have to increase access to finance for the millions of small businesses that are the lifeblood of our economy.

Yours,

Chris Leslie MP – Shadow Financial Secretary to the Treasury

Chuka Umunna MP – Shadow Minister for Small Business and Enterprise